Tullow Oil risks losing assets in Uganda following suit to halt petroleum activities

Tullow Oil is facing the worst end to the year 2011 with a suit observers say has the potential to make them lose their oil exploration and production interests in Uganda.

This follows a petition by a city lawyer filed in the High Court seeking an injunction against the government signing or approving any oil licenses and agreements.

Hamada Mulumba, the chief petitioner against oil operations

The chief petitioner, lawyer Hamada Mulumba wants court to restrain the Attorney General, Heritage Oil and Gas Limited and Tullow Oil Uganda from “undertaking any further dealings including but not limited to exploration, production, selling, assigning, transferring any interest in exploration Area 3A (EA-3A) kingfisher (Kajubirizi) of the Albertine Graben.” Tullow which co-owns 3A with Heritage bought the later interests at about $1.5 billion in 2010. The company which now owns almost 100% of all the oil wells so far identified is planning to farm out 33.3% of its stake of France’s Total and another 33.3% to China’s CNOOC. The government is yet but expected to approve the sale by end of January 2012.

Tullow bought and is about to sell “hot air”

But Mulumba through Bwambale , Musede and Co. Advocates states that 50% of the stake Tullow Bought from Heritage Oil was had already reverted to the government. Mulumba wants a declaration that Kingfisher discovery ceased to form part of the petroleum exploration area for Heritage and Tullow when Heritage failed to ask for a production license for Kingfisher well in block 3A after the exploration lincense had expired beyond the two years. The license for the whole Block 3A also later expired beyond the renewable eight years provided by the law (section 20).

Key issues of contention in Uganda’s oil sector

  1. The government is not ready to undertake oil production (more preparation and laws needed)
  2. All Heritage Oil and gas assets sold to Tullow were null and void as the former’s license on Kingfisher exploration well (in Block 3A had ended) and as per 19 (1) (b) of the Act they reverted the government.
  3. The Memorandum of understanding (MoU) signed between Tullow and Uganda government to normalize the license issue is null and void as it is inconsistent with the Petroleum Exploration and Production Act 1993
  4. Licenses for the oil blocks should be made in accordance with the Public Procurement and Disposal of Public Assets Authority Act (open bidding).
  5. The Court cases between Tullow oil and Heritage Oil and gas, as well as between the Uganda Revenue Authority (on behalf of the Uganda Government) and Heritage Oil and Gas –are warning signs of how uncertain it is that Ugandans will benefit from the oil sector.
  6. The recent corruption allegations that top ministers have received hefty bribes from oil companies to give the companies favourble deals have further increased worries on the running of the oil sector and increased concerns that Ugandans might not benefit from the oil resource.
  7. The increasing insistence by the government to keep oil production sharing agreements secret raises concern as to what the government is hiding, what and how much has been given away and whether oil companies and not taking advantage of the country.
  8. The confidentiality (secrecy) clauses in the Production Sharing agreements no longer apply since the license with the companies with which the agreements were signed have since expired. According to section 59 of the Production Sharing agreement, the confidentiality clauses cease to exist when the license ceases to exist. It is for this very reason Ultimate media decided to publish the oil agreements.

Although Heritage had made a significant find in the kingfisher oil well and logged the oil well for future production as per their report to the Commissioner for Petroleum (as required by the law), on 19th  February 2008, the company did not apply for the production license within a month as required by the law.

Map showing Albertine Graben oil fields in Uganda

According to documents accessed by Ultimate Media, Heritage returned four months late in July 2010 to apply for the said license, which was not given. It should be remembered that by this time, Heritage had already negotiated the sale of its assets and only came for the license after it became an issue with the government it were to approve the sale. Moreover, Heritage had a bad history of abandoning licenses as witnessed in the execution of their first license of Block 1 which they neglected after two years of operation.

It still beats normal understanding why Heritage did not apply for the production license and why Tullow didn’t push Heritage to do the same for the current and stake they were about to purchase from heritage. We are currently investigating allegations that top oil companies do not mind about Uganda legal provision as they are sure of bulldozing or enticing the government officials to do what they (oil companies want at any time).

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